GB: Merchandise Trade

Fri Feb 06 03:30:00 CST 2015

Consensus Actual Previous Revised
Level Stg-9.1B Stg-10.2B Stg-8.85B Stg-9.3B
Imports-M/M 2.7% -3.2% -1.9%
Imports-Y/Y 3.2% -4.8% -2.9%
Exports-M/M 0.1% -0.4% 0.1%
Exports-Y/Y -2.8% -1.1% -0.2%

The global goods trade gap widened out from an upwardly revised Stg9.3 billion in November to a surprisingly large Stg10.2 billion in December.

Exports edged just 0.1 percent higher on the month but imports were up a hefty 2.7 percent as a jump in volumes more than offset a decline in oil costs. Even so, the shortfall excluding oil and other erratic items still worsened as the red ink increased by Stg0.4 billion to Stg9.3 billion, matching its worst performance since July. Underlying exports fell 0.6 percent versus November while imports were 0.8 percent firmer.

The deficit with the rest of the EU weighed in at Stg6.4 billion, little changed from last time, but the shortfall with the rest of the world climbed Stg1.0 billion to Stg10.2 billion.

For the fourth quarter the trade gap stood at Stg17.1 billion, a reduction of Stg1.6 billion from the third quarter outcome. Moreover, with export volumes up 4.5 percent during the period or more than three times the rate of imports, the signs are that net trade in goods had a positive impact on fourth quarter real GDP growth. Nonetheless, for calendar 2014 the red ink totalled some Stg34.8 billion, the most since 2010 and another blow to those hoping that the long-awaited rebalancing of the UK economy has finally started.

For now the external imbalance is not a big issue for the pound and weaker oil prices should anyway help to reduce the deficit over coming months. However, with UK domestic demand likely to outpace by some margin its continental European counterpart this year, more medium-term downside pressure on the unit is likely to build quite steadily.

Merchandise trade balance measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade. In the UK the main market focus is the global goods balance as this is seen as a better guide to the economy's competitiveness.

Changes in the level of imports and exports, along with the difference between the two (the trade balance) are a valuable gauge of economic trends here and abroad. While these trade figures can directly impact all financial markets, they primarily affect currency values in foreign exchange markets.

Imports indicate demand for foreign goods and services in the UK. Exports show the demand for UK goods in countries overseas. The pound sterling can be particularly sensitive to changes in the chronic trade deficit run by the United Kingdom, since the trade imbalance creates greater demand for foreign currencies. The bond market is also sensitive to the risk of importing inflation. This report gives a breakdown of trade with major countries as well, so it can be instructive for investors who are interested in diversifying globally. For example, a trend of accelerating exports to a particular country might signal economic strength and investment opportunities in that country.

The UK's trade balance is particularly susceptible to swings in the oil account and so within the overall goods balance, financial markets will normally focus on the balance excluding oil and other erratic items.